OBSERVERS UPBEAT OVER RI ECONOMIC GROWTH THIS YEAR

By Andi Abdussalam

Jakarta, Jan 11 (ANTARA) - Entering 2007, economic observers and bankers have expressed the belief that Indonesia's economy in 2007 will perform better than in 2006. They are optimistic economic growth this year will exceed last year's 5.5 percent.

        But some of them doubt the validity of the government's economic growth projection of 6.3 percent for 2007.

        IMF Representative in Indonesia Stephen Schwartz said the government's target of 6.3 percent was an "ambitious" one. "But it could be achieved if the government is able to improve the investment climate and carry out infrastructure programs well." Stephen said.

        The same view was expressed by economic analyst Aviliani of the Indonesian Revival Team (TIB). She said the 6.3-percent target was difficult to achieve as the government still had little commitment to improving infrastructure and the investment climate.

        Economic growth can be stimulated only if new infrastructure programs are carried out, she said. But if infrastructure development did not run well, Aviliani predicted economic growth would reach only between 5.6 and 5.7 percent which would still be higher than the figure in the previous year.

        Fund allocations from the state budget for infrastructure development in 2007 were still not enough. "In the 2007 state budget, the allocation for infrastructure is only Rp100 trillion, while in the private business community's view the ideal budget for this sector is Rp300 trillion," she said.

        The TIB economist said if Rp300 trillion was provided by the government for infrastructure development, the economic growth target of 6.3 percent would be achievable.

        Bank Indonesia (BI) Governor Burhanuddin Abdullah predicted the country's economy would grow by around six percent this year.

        "2007 will be a promising year. We are optimistic about Indonesia's economy. BI predicts it will grow around six percent based on moderate assumptions or 6.3 percent if we are optimistic or 5.7 percent if we are pessimistic," he said.

        He said the country's foreign exchange reserves were predicted to be bigger this year than last year.

        The optimism was shared by bankers. "Indonesia's macro economic growth is expected to reach over 6 percent in 2007 as all sectors, including banks, are predicted to grow," Retail Director of Bank Mega Kostaman Thayid said.

        "Banks' loan-to-deposit ratio (LDR) is expected to increase to 70 percent from this year's 60 percent," the banker added.

        Kostaman said 2007 was expected to be full of opportunities for banks to support efforts to boost economic growth.

        The banker, however, also said economic growth could not be increased smoothly if the interest rates on bank credits were still high. The rates of interest on bank now ranged between 15 percent and 16 percent which was still high, he said.

        He said the government was now seriously trying to develop the real sector and actively offering various projects to foreign investors.

        Kostaman said bank interest rates were expected to go down to 12 -13 percent in the middle of 2007 thanks to the lowering of Bank Indonesia's benchmark rate.

        Bank Indonesia had gradually cut its rate from 12.75 in May last year to 9.50 percent this month. The central bank reduced its rate to one digit to 9.75 percent for the first time last December.

        With the lowering of the BI rate, foreign investors are expected to make long-term investments in Indonesia, Kostaman said.

        Economic observer Hendrawan Supratikno of the TIB said a BI rate of 9.75 percent would help lower the interest rates on bank loans in the first semester of 2007.

        "The lowering of the interest rates on bank credits is important to help enhance the dynamics of the production sector," said Hendrawan, who is also post graduate director of the Indonesian Business Institute and Informatics (IBI) said.

        The government hopes that banks would lower the interest rate on credits to about 10 to 11 percent after BI had cut its benchmark rate.

        About the government's expectation, Kostaman said it was difficult to fulfill. "With the inflation rate at 6-7 percent, it is hard for banks to meet the government's expectation," he said.

        In the meantime, Corporate Banking Director of Bank Niaga, Chatherine Hadiman said it was the banks' respective policies to lower the interest rate on their credits.

        According to Chaterine, the banks' interest rates would go down to between 13 and 14 percent if the BI rate was lowered to 9.50 percent.

        "It is not easy for banks to meet the government's hope. The government's expectation can be met if the BI rate is lowered to between 7 and 8 percent," Chatherine said.

        The lowering of the interest rate on bank credits is expected to help boost investments, the production sector and exports.

        According to Stephen Schwartz, investment and exports in 2007 would increase slightly but exports which had been growing briskly of late would decline throughout the year.

        He said the year-on-year value of exports in December increased by more than 29 percent but their volume grew only 10 percent.

        Yet, he believed that Indonesia's economic growth rate in 2007 will reach six percent because new investment is likely to take place in the first half of the year. "I think it will be six percent as many quarters and analysts have projected," he said.

        He said the government's target of 6.3 percent was an "ambitious" one. "But it could be achieved if the government is able to improve the investment climate and carry out infrastructure programs well." (A014/A/HAJM/17:55/I010/9.47) (T.SYS/A/A014/C/I010) 11-01-2007 09:53:26